Some nuggets that came out of it :

- The Kieretsu Forum has a good way of defining the funnel for investment. Approximately one in a hundred companies get funded

- Funding sources are changing. Historically Angels have been smaller investors and VCs larger. That may be blurring. Sequoia recently made a $20k investment (tiny in their portfolio), while 6 angels banded together and made a $1.3M investment

- Large markets are key. If you are in a large market then you have the time to zig and zag and get your solution truly honed to the customer. A small market gives you less time to fine tune your offering.

- The #1 issue is the team. As it takes on average 9 years to get to exit, it is imperative that the team members are strong, and that means honest and trustworthy. Investing was compared to a marriage so the team must be driven to succeed, have unique insight and operate ethically.

These Orrick sessions are free to entrepreneurs so don’t hesitate to contact me or Chad Lynch publications@orricklawfirm.com to get more information.

More to come

Linda, DJ and myself have started to review smaller companies to see if we can help them. It is not philanthropic, as we will be making money as well, but we have a broad skill set which is particularly applicable to help fledgling companies.

Linda’s strong financial/structuring background and enormous rolodex, my operational expertise and technology background and contacts, together with DJs, entrepreneurial background and fund management experience give us a broad set of tools to bring to the table.

Clean tech is an area I am particularly interested in. I was running a small green company most of last year and I looks like clean tech is coming of age. I read this on the Cleantech group web site. “Cleantech is increasingly core to corporate competitiveness, with global markets for cleantech products and services predicted to reach $3.6 trillion by 2020.” That is a big market!! Power storage, and batteries in particular, are the holy grail here. A lot of progress is being made in battery development and the chemistry behind them, but there are still major opportunities there.

Another area that I really get off on is cloud computing. Intel’s astounding financial results recently, record profit on record revenue point to a massive investment in data center development and deployment by corporate customers. As a friend of mine told me yesterday, if you lived beside the Hoover Dam, it makes sense to build an aluminum plant. Likewise for the datacenter development. With all these company clouds being developed, it makes sense to build a company that will take advantage of those resources….

Internal Revenue Audits which yield millions of dollars in additional taxes.

I served on a large corporate field audit in Chicago, Illinois years ago.  The company was an international food giant, with very glamorous corporate offices.  When I arrived to start my work.  I was shown to the top floor of the building, and through the corporate board room with the longest table in the world.  Past that glass encircled room, I went into the executive suites where out of town guests would be housed for the week of indoctrination and training.  Later I would learn that this location was selected to isolate me, so that I would not have access to the general populous and general company information.  I enjoyed the privilege of visiting the “Think Tank” creative room which was modeled after a submarine and was complete with a suede covered round waterbed, indirect lighting, soft mood music, and a small writing room to the side.  When I entered the room, it was sealed shut and a red light went on outside to indicate busy and occupied. 

And the everlasting audit memory came when I accumulated all the tax information, and all the international tax reports provided.  My tasks was to pull one line item from each document that had a similar tax category.  Bottom line came when we realized that domestic U.S. profits were shifted to international operations and reported offshore thus avoiding U.S. domestic tax treatment which was not cumulated but reported separately.  In the final analysis, millions of dollars in new taxes were collected.

Lunch with the Treasurer and a bribe

While on another Internal Revenue Service field audit, I wandered through the company.  Since I found no one in authority who knew who I was, I asked several people in the coffee room to show me where the books were.  One nice person brought me a couple of ledgers. However, they seemed rather small for such a big corporation.  So, I got up and walked through another couple of offices, and again asked where the books were.  A nice young lady told me that the books were in a cabinet behind where I was standing.  So, I opened the cabinet and helped myself.  I took everything I saw back to my work station.

Later that morning, an executive came in and offered to take me to lunch.  At lunch that nice executive offered me a bribe.  I came to realize that I had accumulated two separate and distinctively different sets of books for the same corporate operations. This revelation stunned me. 

Then my Regional Audit Manager demanded I report to the home office.  I trembled and feared my job was gone.  When escorted into his office, I felt attacked and grilled about the situation.  Questions were harsh and pointed, virtually accusing me of something negative.  Suddenly, my face went red, and as I let go of every four letter word I could think of, I slammed his door and stomped down the hall.  He ran after me, laughing and apologizing.  Then I was told that I was being tested to determine whether I had self confidence enough to make a career in dealing with difficult situations, such as this one. 

My career  in financial management and audit continued to immerse me in similar situations, giving me a real opportunity to comprehend just how valuable good business principles and ethics are.  Other such horrors include:

An Executive was stalling an early stage company in desperate need of funding, and at the same moment engaged a third party to woo the delicate startup just long enough for them to run out of money.  Consequently, the acquisition was had at a much cheaper multiple.

• When presenting a list of investment proposals for funding, I became puzzled that the worst opportunity was funded in lieu of other more promising ones.  When I asked why, I was told the sponsor needed to be encouraged even if he presented a bad opportunity.
   
• An incubator vying for a spin out made some pressing demands and unrealistic assertions.  Upon investigation I found that the individual was a scam artist with multiple names and multiple corporations.  He went to jail. 

The stories are shocking.  Good business professionals must ask the question, “How much is a business or transaction worth, and how much is your business reputation worth when you are tempted to put everything on the line and take that brave risk?  Just how much would you pay for the business and to get the deal done?”  When there are mysteries of valuation and deal terms, it is time to put the brakes on and slow the pace.  Take a little extra time to do a proper due diligence, and if necessary, audit everything and everybody!

REASONS FOR FAILED FUNDING EFFORTS

• Misguided Assessment of Risk
• Poorly timed capital infusion planning
• Lack of Creative Solutions for Funding Options
• No Large Market for the Product, and Poor Penetration Possibilities
• Costly Due Diligence Steps not taken
• Market Presentation and Value Proposition poorly done
• Technological holes
• Poor Management Team Structure
• Lack of Proper Skill Set
• Unrealistic cost projections and overly demanding valuations
• Absence of Strategic Partnerships and Alliances
• Poor or Completely Wrong Revenue Model for the Industry
• No Proper Legal or Shareholder Structure or Organization
• No concept of Branding or efforts required
• Substandard Representation and Poor Communicators
• Negative, Awkward or Undereducated Personalities in Point Positions
• Wrong selection of Target Investors and Strategic Partner Entities
• No profitable and realistic exit strategy
• Lack of documentation of transaction-related legal documents, including credit agreement, indenture, and purchase/sale agreements

There are many reasons to be considered, but the above short list represents some of the most important ones.  As experienced fund managers having had responsibility for large funds deployment, Glisson Capital team members have first hand knowledge of the challenges inherent in the funding cycle.  Investors many times don’t know how much risk is in their portfolio, and many entrepreneurs either unrealistically assess risk exposure or don’t know how to quantify it at all.  Any lender or investor will get a knot in the pit of their stomach when evaluating a proposal and trying to decide to cut a check.  The responsibilities to the shareholders and management teams members are great.  Consequently, the reasons for making the investment must overwhelming persuasive and documented precisely.

Investment banking requires a skill set that combines both art and science.  It is a fluid skill that we must constantly keep abreast of new aspects of the value model. Economics of the deal, the rich institutional considerations that are essential on Wall Street are not well documented.  In addition, a good fund manager must reply upon internal gut instincts to motivate action.  Quality relationships shore up those crucial decisions, when the dollars have been laid on the line.

Glisson Capital managers are experts in Investment Banking Valuation, focusing on the primary methodologies used on Wall Street to determine valuation for public and private companies on a standalone basis, as well as within the context of transactions, restructurings, and the investment decision making process. Drawing upon their own transaction experience, as well as their broad network of professorial and professional sources, Glisson successfully bridge the gap between finance theory and practical application.

Corporate management must overhaul its image, ethical practices and governance structures so they no longer exaggerate the payoffs and discount the dangers of outsourcing production and trimming investments in R&D. Business schools would do well to teach a new finance model. On the one hand we heavily discount current cash flows since they are no indication of continued business volume. And on the other hand, we applaud a highly leveraged corporation waist high in real estate and other fixed assets, because that ensures the preservation of “Value” and “Net Worth” which is a tough thing to substantiate. Wall Street added to the unrealistic expectations of wealth generation by their quarterly growth predictions which in the end became growth demands. These demands led to heavily penalizing young companies for lacking the stuff necessary to maintain a constant 40% year-over-year or better appreciation.
President Obama’s huge bailouts of the Banking Institutions and the American Automobile Manufacturers has not as yet created new jobs to alleviate the double digit unemployment figures which currently exists in the American job market. Although Fed Chairman, Ben Bernanke admits that capital investment in small business is the correct area of stimulus, he is powerless to affect that vital focus.

It is a long standing fact that America is replete with entrepreneurial talent and is an early adopter society. Historically, we have been early movers and strong influencers in the industrial age and the emergence of our high technology driven affluence. Yet, the US is threatened with huge job losses resulting from the retooling of our automobile engines away from dependence on foreign oil, and impending health reforms that threatens medical treatment rationing (including cancer treatment to the elderly) and the virtual elimination of our windfall profits in the pharmaceutical sector. (The SBA estimates that there were approximately 875,000 manufacturing jobs lost in the year 2008.)

WHERE THE JOBS ARE
According to the Small Business Administration Office of Advocacy, “Small businesses with fewer than 500 workers represent 99 percent of businesses, employ more than half of the American work force, and create two-thirds of the net new jobs. (The Office of Advocacy estimates that there were 6.1 million employer and 23.1 million nonemployer firms in the United States in 2008. Self-employment rose during our economic downturn, in part because of “necessity entrepreneurship,” even though self-employment does not seem to be swayed much by cyclical changes. During the two past reces¬sions, firms with fewer than 20 employees were the only ones with positive net job growth;)
Labor remains a challenge for small business. The Baby Boom generation comprises 78.2 million Americans born between 1946 and 1964, and the first wave of this group has already begun to retire, a process that will accelerate over the next decade. These retirements pose two problems for businesses large and small. First, firms will see a mass exodus of institutional knowl¬edge that will be hard to replace in certain fields. Many businesses have contemplated ways to entice more of these retirees to delay their departure, if possible, as their retirements will pose challenges for firms to effectively train others to step into these roles. Second, the departure of this large generation from the work force could lead to labor shortages in some industries, particularly in technological and health occupations. Immigrants are extremely entrepreneurial; according to one study, 25 percent of new engineering and technology compa¬nies were started by immigrants.
Because entrepreneurial small firms are such an important part of the American economy, what is good for the overall economy is also generally good for small business. “ Obama’s administration has made available SBA-guaranteed loans that are targeted to sup¬port economic development and entrepreneurship, especially in rural, urban, and low-income communities. Granted these communities need resources. However, given the extreme suffering of the American Business community as a whole, low income community stimulus vs small business stimulus at large is a questionable judgment call.
American jobs are to be found, or rather created in the restoration of our business sector’s capability to develop and manufacture enough high-technology products domestically to meet or exceed our consumption needs and remain a cutting edge sword on the cusp of Global Technology emergence. Reversing the decline in competitiveness will require a return to “Our First Love…of Technology innovation”, and doing what we as a Nation do best, i.e., take risks and be a first mover. If we can justify a trillion dollar industry bailout, then we should be staunch enough to recognize the in place infrastructure of cable, copper and even fiber optics must give way to new forms of infrastructure, no matter what the cost. So it is time for a change, where America can lead the way to a new economic structure based on realistic expectations and achievable milestones.

According to the University Of Maryland, School of Business, “Although American small businesses are admired for their ingenuity and aggressiveness, this is another area where they struggle, earning the equivalent of a ‘C-‘ in theMarketing and Innovation sub-index. Small businesses are not as successful as they would like to be in effectively marketing themselves to grow their businesses beyond their current size. They also fight to think of new innovations, but oftencome up short. The bright spot for American small businesses is in the impeccable service they provide their customers and treat them with care. This is reflected in the ‘A-‘ they earn in Customer Service

GOING TO THE “CLOUD”
How can small businesses improve their competitiveness in the marketplace?
Answer: Use the Internet.

Assuming that a venture capitalist is not going to suddenly appear and shore up most small businesses, a sound investment a small business can make is in ramping up its Internet business solutions, or so it would seem based on the experiences of those small businesses who have done it. This means more than just building a website, but making a commitment to online advertising, allowing customers to view and order products online, providing email customer service and self-service options to customers. It also involves improving internal communications by having a shared network for employees to collaborate on projects and providing the means for them to communicate online with each other.

SHOW ME THE MONEY
American Venture Capital investment programs have been idolized as an ultimate standard to measure the development of investment programs in China, Europe and the Middle East, as well as other nations. The US aggressive investment in Technology and the Medical industry showcase what can be achieved with a strong desire to change and innovate. Yet even with all the positive reinforcement from these outcomes, Real Gross Private Investment fell. In calendar year 2008, lending was down 40 percent in the number of loans and 20 percent in dollar volume. The SBA research indicates that Real gross private domestic investment fell 6.7 percent in 2008, after a decline of 5.4 percent in 2007. The third quarter, 2008 was marked by significant declines In the fourth quarter alone, overall investment fell 23.0 percent on an annu¬alized basis. What began as a normal correction in the housing market eventually led to a collapse in the global financial system and the failure of some of the biggest banks in the world. Ultimately, this would affect small business owners’ ability to access credit.
As the financial crisis worsened, the stock market crashed as well. The daily closing price for the Dow Jones Industrial Average (DJIA) peaked on October 9, 2007, at 14,165, and then began to plummet. By December 31, 2008, the DJIA had fallen to 8,776—down 38 percent from the peak.

Our challenge today rests on the shoulders of the American savers and investors. It is time to be responsible with our investment funds. Not only should we focus our attention on the careful selection of appropriate projects with real potential for success. It is time that we contractually demand our investment capital NOT be shifted offshore, but utilized to purchase assets, employ American workers, and rebuild the American Business fiber. Our young men are needed at home, and our American dollars are also needed to increase the velocity of our M1 and M2 money supply, thereby increasing the access of capital by American Small Business.

It is truly a great time to invest.

And vendors have started to hear these business demands and are coming up with solutions that just makes the perfect business sense. A complete win-win!

RightScale announced this week their new business intelligence (BI) solution. The public-cloud management company has teamed with Jaspersoft, Talend and Vertica to deliver a push-button BI offering that leverages Amazon’s cloud infrastructure. BI is very important – so important, in fact, that many companies would be hesitant about migrating their BI processes to the cloud. However, because the RightScale offering is self-service and pay-by-the-drink, companies can run ad hoc BI jobs without investing in new infrastructure or overloading existing resources.

See the excellent demo video here which demonstrates how quick and easy it is to launch a full fledged BI solution using the RightScale’s package.

Microsoft perfected the art of selling packaged solutions with Office – RightScale may very well perfect the art of selling packaged Cloud Computing solutions.

Businesses demand, Vendors fulfill – the cycle of business world moves on…

Our vision at Glisson Capital remains focussed on pairing hugely talented entrepreneurs with world class technology. We match drive, commitment, energy and creativity of our entrepreneurs with the resources, guidance and finances from Glisson Capital to produce success in us and in every one of our portfolio companies.